What connects wealthy immigrants to Israel, Benjamin Netanyahu and Arnon Milchan, (Israeli operative and producer of 145 movies including 12 Years a Slave and Pretty Woman)? They are all supporters of an Israeli tax exemption that is designed to encourage Jewish billionaires to move to Israel.
Bibi and Arnon, the buddies
Since 1950, Israel’s Law of Return has offered automatic citizenship to anyone with one Jewish grandparent who resides in Israel for 90 days. Despite some tensions, immigration has overall been profitable for Israel. Ostensively to encourage immigration, during the 2008 global financial slowdown, Israel enacted Amendment 168 to its tax code exempting from both tax and reporting all foreign source income (income earned outside of Israel) of new or returning residents. By so exempting newcomers, Israel made itself into a tax haven.
Amendment 168 was called the Milchan Law in honor of the man who lobbied for the amendment and, in 2009, the Tablet announced that the “fertilizer company scion-turned-movie mogul Arnon Milchan is taking advantage of the generous benefits and moving back to Israel.”
In response to the law, in 2009-2010 many an expatriate Israeli billionaire decided to return to his homeland and in 2018 Russian Jewish billionaire Roman Abramovich became an Israeli citizen and instantly became the country's wealthiest citizen with a net worth, according to Forbes, of $11.5 billion.
The provision may be a factor in the outsized number of millionaire immigrants to Israel In 2015 over 4000 millionaires moved to Israel, more than 10% of that year’s 31,013 immigrants. In fact, Israel was fourth in millionaire inflow — after Australia, the United States and Canada, in that order.
Haaretz called for a repeal to the exemption noting that it provides a “clear benefit to the billionaires who save on taxes for 10 years… [and] enjoy the fog of not having to report for 10 years – a fog that gives them time to conceal their assets and profits.” This benefit is paid for “by the citizens of countries where billionaires no longer have to pay taxes, and the citizens of Israel, who don’t benefit from a tax on the billionaires’ income.”
Israel's Tax Authority Director, General Moshe Asher, said Milchan’s law made Israel into one of the world’s “most generous tax havens." Asher defined a tax haven as a place that a) one doesn’t pay taxes and b) there is an exemption from reporting one’s income. And, Asher pointed out: “In Israel we have something extra. We have an expansive network of tax treaties with developed countries that a typical offshore tax haven does not have. [This means that the immigrant] would pay no taxes abroad because of the tax treaty with Israel, and no taxes in Israel because of the law here.”
Israel’s state comptroller worried that the Amendment gave immigrants an incentive to launder money or to use money that was laundered abroad, “activities which may encourage crime and damage the integrity of Israeli society and the economy.” In 2014, an audit of 600 bank accounts belonging to recent immigrants found one hundred accounts to have irregular activity that caused the bank to flag them for suspected money laundering.
The reporting exemption also prevents Israel from honoring its 2013 commitment to follow OECD rules and share tax information with other countries. But each year since 2014, a provision canceling the reporting exemption has been included in legislation and each year it has been removed before the legislation was even voted on.
Despite these issues, Netanyahu attempted to increase the exemption period to 20 years in a move that would have helped Milchan but was rejected by the Finance Ministry. The Attorney General has accused Netanyahu of seeking the extension on Milchan’s behalf.
Milchan's biography is novelistic. While running businesses in dozens of countries and producing hit Hollywood movies, Milchan secretly worked for Israel’s intelligence service, acquiring technology and weapons. His efforts included helping Israel develop its nuclear weapons by sourcing uranium from South Africa.
Netanyahu and Milchan’s difficulties began in 2013, when Milchan gave an interview to the Israeli news program Uvda. In the interview Milchan detailed his secret spy work. His revelations led the U.S. to deny Milchan an extension of his ten-year residence visa, jeopardizing his Hollywood career. Netanyahu intervened on Milchan’s behalf with U.S. Secretary of State John Kerry and Milchan was granted an extension.
Then, also in 2013, Milchan began expressing his gratitude by providing luxuries and cash that Netanyahu claims were just gifts from a friend. Under repeated questioning by Israel’s Attorney General Mandelblit, Milchan admitted that what Netanyahu and his wife received were not 'gifts between friends' but rather responses to demands made by the Netanyahus.
Mandelblit has announced that after Israel’s election he intends to charge Netanyahu with taking bribes to gain influence and political favors. (The charges resulting from his relationship with Milchan are not the only charges.) Borrowing a page from his friend Donald Trump, Netanyahu has dismissed the investigation as a political witch hunt. In another echo of Trump, polls show it wouldn’t cost Likud any seats in the Knesset if he were to face charges.